Liability for Securities Fraud: A Reader on the Impact of the Janus Case

The Janis decision made a significant distinction between primary and secondary actors, and who is liable for misrepresentations in a securities transaction. Here’s what lawyers on JD Supra are saying about the case’s impact.

Supreme Court Holds Mutual Fund Investment Adviser Not Liable for Misleading Statements in Fund’s Prospectus (Duane Morris LLP)

“The Supreme Court concluded that the only person or entity that may be held liable in a private action for having ‘ma[d]e any untrue statement of a material fact’ within the meaning of Rule 10b-5 and Section 10(b) of the Securities Exchange Act is the one ‘with ultimate authority over the statement, including its content and whether and how to communicate it’—in this case: the mutual fund itself.” Read more »

U.S. Supreme Court Limits Reach of Primary Liability in Securities Fraud Cases (Morrison & Foerster LLP)

“…[I]n a 5-4 decision, the U.S. Supreme Court narrowed the circumstances under which a defendant can be held liable in a private action under Rule 10b-5 for ‘making’ a false or misleading statement…The decision has important implications not just for mutual funds and their advisers, but for all investment advisers, accountants, and others who provide services to issuers of securities. The decision may also have broader ramifications in securities litigation brought under Rule 10b-5.” Read more »

Supreme Court’s Bright Line Test Narrowly Limits Primary Securities Fraud Liability: Janus Capital Group, Inc. v. First Derivative Traders (Reed Smith)

“The Court held that primary liability can attach to a statement or omission only if the defendant had ‘ultimate authority’ over its making or, perhaps, if it was publicly attributed to him. As a result, primary liability is no longer a risk for professionals who only prepare or contribute information to the public statement of another, absent explicit public attribution.” Read more »

Supreme Court Establishes Bright-Line Rule for 10b-5 Liability, But Questions Remain: Janus Capital Group, Inc. v. First Derivative Traders (Morgan Lewis)

“[I]n an important victory for the investment management industry, the U.S. Supreme Court held that mutual fund adviser Janus Capital Management LLC (JCM) and its parent, Janus Capital Group, Inc. (JCG), could not be held liable in a private suit under Rule 10b-5 under the Securities Exchange Act of 1934 (the 1934 Act)2 for allegedly false statements contained in a mutual fund prospectus because the Janus Investment Fund itself, rather than the adviser, “made” the statements in the prospectus.” Read more »

United States Supreme Court Holds that the “Maker” of a Statement for Rule 10b-5 Purposes is the Person or Entity with Ultimate Authority Over the Statement (Sheppard Mullin Richter & Hampton LLP)

“In so holding, the Supreme Court further narrowed the scope of potential securities fraud liability and aligned with its prior decision which held that a private right of action under Rule 10b-5 does not include suits against aiders and abettors who merely contribute “substantial assistance” to the making of a statement but do not actually make it.” Read more »

Supreme Court Forecloses Primary Liability for Secondary Actors in Securities Offerings (Ropes & Gray LLP)

“To ‘make’ a statement, the Court held, literally means only to actually ‘make’ a statement – but does not embrace drafting, preparation, or anything else. The decision means that the plaintiffs’ bar will not be able to sue peripheral players as primary violators in prospectus disclosure cases.” Read more »

Supreme Court Draws Bright Line Barring Securities Fraud Claims Against Advisers To Companies Who Do Not “Make” Statements At Issue (Bryan Cave)

“The decision dismissed a lawsuit against an investment adviser to a mutual fund, but the rationale adopted by the Supreme Court would similarly bar private securities fraud lawsuits against other kinds of advisers to all manner of companies such as investment bankers, accountants and lawyers who help prepare statements ultimately made by their client companies.” Read more »

Supreme Court Limits Investors’ Right to Sue in Securities Fraud Lawsuits(SEO|Law Firm)

“In the decision, the Justices addressed the question of how to assign liability to legally independent companies that nonetheless conduct business as a seemingly singular entity with mutual actors and interests.” Read more »

Supreme Court Resolves Janus Controversy But The Gates of War Are Not Entirely Closed (Allen Matkins Leck Gamble, Mallory & Natsis LLP)

“According to Justice Thomas writing for the majority, a person is a “maker” of a statement when that person ‘is the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it.’ The majority rejected the government’s amicus argument that ‘make’ should be defined as ‘create’.” Read more »